Stocks jump on lull in trade tensions

World stocks have enjoyed a strong bounce on Friday as a recovery in Asian markets spread to European shares after a turbulent week of selling as investors' fears of higher barriers to trade came closer to becoming reality.

MSCI's index of world stocks rose 0.5 per cent in early trading, its strongest gain in three weeks, but its second quarter was still set to be in the red as investors priced in US tariffs that are set to be implemented next week.

The US administration is due to activate tariffs on Chinese goods worth $US34 billion ($A46 billion) on July 6, which is expected to prompt a tit-for-tat response from Beijing.

European stocks rallied strongly, with the pan-European STOXX 600 up 1.2 per cent and Germany's trade-sensitive DAX up 1.5 per cent.

But trade wars have already mauled assets from the Chinese yuan to European autos stocks, and wiped $US1.75 trillion off world stocks' market capitalisation since June 12.

The euro jumped after leaders at an EU summit reached an agreement on migration, rising 0.5 per cent to $US1.1622 at 0800 GMT.

"The outcome of the summit tells us something about the severity of the situation," said Jan von Gerich, chief analyst at Nordea in Helsinki.

"I'm not confident it will solve the underlying issues but there was a fear that the summit would fail and we could get a collapse of the German government, so that risk premium is being priced out," he said.

While Asian stocks rose, the Chinese yuan suffered its worst month on record, losing three per cent against the dollar in June as investors pulled money from a market likely to suffer from higher barriers to trade.

The Chinese yuan traded as low as 6.6441 to the US dollar on Friday, its lowest since November.

But despite Friday's gains, the CSI300 and Shanghai Composite are the world's worst-performing major indexes this year.

In strong contrast to the yuan, the US dollar was set for its strongest quarterly gains since Q4 2016, helped by the US Federal Reserve's move to raise interest rates in June, and expectations of further hikes this year.

The dollar index edged down 0.5 per cent to 94.924, and was up 0.1 per cent against the yen at 110.65.

European bonds diverged, with the EU Summit migration agreement pushing Germany's Bund yields up while Italian 10-year government bond yields fell to a one-week low.

The yield on benchmark 10-year Treasury notes rose to 2.8547 per cent and the yield curve widened slightly to 33.3 basis points.

Many investors see its flattening to record lows as a sign recession may be around the corner.

Intensifying trade tariff fears contrasted with a still strong picture of the global economy and robust company earnings growth.

"Our view for this year has been that asset markets would likely underperform the real economy as peaking growth momentum, tighter financial conditions, higher inflation and more volatility would act as a drag on valuations even as EPS trends remain solid," said Morgan Stanley analysts, cutting their index targets for MSCI Europe on Thursday.

Oil prices also came under pressure from trade frictions, falling despite tight crude market conditions that had pushed prices to three-and-a-half-year highs on Thursday.

US crude was 0.4 per cent lower at $US73.19 a barrel. Brent crude rose 0.2 per cent to $US78.01 per barrel.

Gold remained near six-and-a-half month lows, weighed down by trade worries, interest rate expectations and the strong dollar.

Spot gold traded up 0.2 per cent at $US1250.78 per ounce, but was still headed for its worst monthly performance since November 2016.

Emerging stocks jumped 1.6 per cent, having hit a one-month low in the previous session. The index was set for its worst month since January 2016 as the rising dollar battered emerging economies.